Abstract

In this paper, I use confidential UK corporate tax returns dataset from Her Majesty's Revenue and Customs (HMRC) to explore whether there are systematicdi¤erences in the amount of taxable profits that multinational and domestic companies report. I estimate, using propensity score matching, that the ratio of taxable profits to total assets reported by foreign multinational subsidiaries is 12.8 percentage points lower than that of comparable domestic standalones, which report their ratio of taxable profits to total assets to be 25.2 percent. If we assume that all of the difference can be attributed to profit shifting, foreign multinational subsidiaries shift over half of their taxable profits out of the UK. The difference is almost entirely attributable to the fact that a higher proportion of foreign multinational subsidiaries report zero taxable profits (59.2 percent) than domestic standalones (27.5 percent), suggesting a very aggressive form of profit shifting. Comparison of propensity score matching results using accounting and taxable profits data reveals that the extent of profit shifting estimated using accounting data is much smaller than that estimated using tax returns data.